Investing
I've recently made a shift in investing approach. I have purchased stocks over the last 5-6 years. I have mostly attempted to use the Warren Buffett approach, be it modified. He suggests you look for great businesses at a good price. For me, I have tended to look for the "undervalued" stocks, that is, those stocks that are for good businesses but have been knocked down by the market due to investor worries (about interest rates or some such thing) or bad company news which I think the market has overreacted to.
The new approach I want to employ is a bit more aggressive buying. Previously, I have looked for big, established but still growing companies. My biggest moneymakers to date were Starbucks and Exxon. Both were big companies with strong positions in their industries, but I thought they were undervalued due to them killing the competition. Starbucks was the most satisfying, because when I bought it was somewhat expensive already (as determined by a stock price relative to expected profit measure) but it seemed to still have tremendous growth potential. I looked at the stock price about 5 or 6 months later, and it had already risen more than 20%, so I sold it right there and that was a very good return.
Aeropostale has been another good one. I was trying to think of things that people I know buy regularly that seem to have good chances for expansion in the future. I looked at this business, having bought things for my cousin there, and said, "Wow, this looks like it is undervalued based on what this business should be." The market seemed to be down on the stock due to concerns about this or that, but the fact was that they were going to be around because they are popular in that teen segment and like other retailers they have big markups on simple items that people buy every day.
What I want to focus on going forward is more companies with great ideas or really good business prospects that might still be "expensive" but look to have good growth rates up ahead. I am a very conservative investor, but I am interested in trying to expand that stock-buying intelligence and see if I can make some good decisions. My premise is that investing is not hard, you just have to think about businesses.
I'm pretty excited. I put together a chart of companies I want to follow over the next couple of months that I at least considered buying and then see how each one did over that time period. Should be illuminating to see which ones moved positively and maybe learn some lessons about how to think about investments.
The new approach I want to employ is a bit more aggressive buying. Previously, I have looked for big, established but still growing companies. My biggest moneymakers to date were Starbucks and Exxon. Both were big companies with strong positions in their industries, but I thought they were undervalued due to them killing the competition. Starbucks was the most satisfying, because when I bought it was somewhat expensive already (as determined by a stock price relative to expected profit measure) but it seemed to still have tremendous growth potential. I looked at the stock price about 5 or 6 months later, and it had already risen more than 20%, so I sold it right there and that was a very good return.
Aeropostale has been another good one. I was trying to think of things that people I know buy regularly that seem to have good chances for expansion in the future. I looked at this business, having bought things for my cousin there, and said, "Wow, this looks like it is undervalued based on what this business should be." The market seemed to be down on the stock due to concerns about this or that, but the fact was that they were going to be around because they are popular in that teen segment and like other retailers they have big markups on simple items that people buy every day.
What I want to focus on going forward is more companies with great ideas or really good business prospects that might still be "expensive" but look to have good growth rates up ahead. I am a very conservative investor, but I am interested in trying to expand that stock-buying intelligence and see if I can make some good decisions. My premise is that investing is not hard, you just have to think about businesses.
I'm pretty excited. I put together a chart of companies I want to follow over the next couple of months that I at least considered buying and then see how each one did over that time period. Should be illuminating to see which ones moved positively and maybe learn some lessons about how to think about investments.
posted by David at 10:59 AM
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